DAVICOM — Interim / Quarterly Report 2016

Nov 30, 2016

DAVICOM SEMICONDUCTOR, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND REVIEW REPORT OF INDEPENDENT ACCOUNTANTS

SEPTEMBER 30, 2016 AND 2015

For the convenience of readers and for information purpose only, the reviewers' report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. These English financial statements were translated from the financial statements originally prepared in Chinese. This English translation is solely for the readers' convenience and these financial statements do not include additional disclosures that are required for Chinese-language reports under the Guidelines for Securities Issuers' Financial Reporting promulgated by the Securities and Futures Commission of the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chineselanguage reviewers' report and financial statements shall prevail.

REVIEW REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To the Board of Directors and Stockholders of Davicom Semiconductor, Inc.

We have reviewed the accompanying consolidated balance sheets of Davicom Semiconductor, Inc. and its subsidiaries as of September 30, 2016 and 2015, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the nine-month periods then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express a conclusion on these consolidated financial statements based on our reviews.

Except as discussed in the following paragraph, we conducted our reviews in accordance with the Statement of Auditing Standards No. 36, "Engagements to Review Financial Statements" in the Republic of China. Our review primarily consisted of inquiries of company personnel and the application of analytical procedures to financial data. A review is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards in the Republic of China, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

As described in Note 4(3), we did not review the financial statements of certain insignificant consolidated subsidiaries, which statements reflect total assets of NT\$314,711 thousand and NT\$233,113 thousand, constituting 24.90% and 17.85% of the consolidated total assets, and total liabilities of NT\$11 thousand and NT\$169 thousand, constituting 0.02% and 0.23% of the consolidated total liabilities as of September 30, 2016 and 2015, respectively, and total comprehensive (loss) income of (NT\$1,681) thousand, NT\$4,845 thousand, NT\$637 thousand and NT\$4,895 thousand, constituting $(15.73\%)$ , $18.81\%$ , $1.37\%$ and $8.03\%$ of the consolidated total comprehensive (loss) income for the three months and nine months then ended, respectively. These amounts and the information disclosed in Note 13 were based solely on the unreviewed financial statements of these subsidiaries as of and for the nine months ended September 30, 2016 and 2015.

資誠聯合會計師事務所 PricewaterhouseCoopers, Taiwan 11012 臺北市信義區基隆路一段333號27樓 / 27F, 333, Keelung Road, Sec. 1, Xinyi Dist., Taipei City 11012, Taiwan T: +886 (2) 2729 6666, F: + 886 (2) 2757 6371, www.pwc.com/tw

Based on our reviews, except for the effect of any adjustments that might have been considered to be necessary had the financial statements of certain non-significant consolidated subsidiaries and the information disclosed in Note 13 been reviewed by independent accountants, we are not aware of any material modifications that should be made to the consolidated financial statements referred to in the first paragraph for them to be in conformity with the "Regulations Governing the Preparation of Financial Reports by Securities Issuers" and International Accounting Standard No. 34, "Interim Financial Reporting" as endorsed by the Financial Supervisory Commission of the Republic of China.

PricewaterhouseCoopers, Taiwan

November 11, 2016

As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the review of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or reviewing standards generally accepted in the Republic of China, and their applications in practice.

				September 30, 2016			December 31, 2015			September 30, 2015
	Assets	Notes		AMOUNT	$\frac{0}{0}$		AMOUNT	$\frac{0}{0}$		AMOUNT	$\frac{0}{6}$
	Current assets
1100	Cash and cash equivalents	6(1)	S	872,700	69	S	896,535	67	S	859,098	66
1125	Available-for-sale financial assets	6(2)
	$-$ current			5,983	1		36,360	3		34,983	3
1170	Accounts receivable, net	6(4)		42,003	3		52,753	$\overline{4}$		49,799	$\overline{4}$
1200	Other receivables			677	$\overline{\phantom{a}}$		214	۰		3,580
130X	Inventories, net	6(5)		30,735	3		30,135	$\overline{c}$		34,212	3
1410	Prepayments			3,276	$\blacksquare$		4,379	$\frac{1}{2}$		4,457	۰
1470	Other current assets			9	u,		12	$\overline{\phantom{a}}$		68
11XX	Total current assets			955,383	76		1,020,388	76		986,197	76
	Non-current assets
1523	Available-for-sale financial assets	6(2)
	- non-current			49,310	4		51,447	4		51,587	$\overline{4}$
1543	Financial assets measured at $cost - 6(3)$
	non-current									1,686
1600	Property, plant and equipment, net 6(6)			131,104	10		131,535	10		132,489	10
1760	Investment property, net	6(7)		112,430	9		114,621	8		115,357	9
1780	Intangible assets			101			$\boldsymbol{2}$	×.		37	$\overline{\phantom{a}}$
1840	Deferred income tax assets			9,014	$\mathbf{1}$		9,365	1		4,978
1900	Other non-current assets	6(8)		6,621			9,433	-1		13,439	1
15XX	Total non-current assets			308,580	24		316,403	24		319,573	24
1XXX	Total assets		s	1,263,963	100	S	1,336,791	100	$\mathbb{S}$	1,305,770	100
				(Continued)

DAVICOM SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of New Taiwan dollars)
(The consolidated balance sheets as of September 30, 2016 and 2015 are reviewed, not audited)

÷

$\widetilde{\mathcal{O}}$

DAVICOM SEMICONDUCTOR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of New Taiwan dollars)
(The consolidated balance sheets as of September 30, 2016 and 2015 are reviewed, not audited)

								$\%$
								1
								1
								$\sqrt{2}$
				$\bullet$		$\mathbf{1}$		$\equiv$
Other current liabilities					1,142	$\overline{\phantom{a}}$	3,291
Total current liabilities			44,931	3	58,676	5	51,211	4
Non-current liabilities
Deferred income tax liabilities			1,772		3,537		512
Other non-current liabilities	6(10)		19,030	2	26,307	$\overline{2}$	22,938	$\overline{2}$
Total non-current liabilities			20,802	$\,2$	29,844	$\mathbf 2$	23,450	$\overline{2}$
Total liabilities			65,733	5	88,520	7	74,661	6
Equity attributable to owners of parent
Share capital	6(13)
Common stock			832,551	66	832,551	62	832,551	64
Capital surplus	6(14)
Capital surplus			259,876	20	283,187	21		22
Retained earnings	6(15)
Legal reserve			58,312	5	50,132	$\overline{4}$		4
Unappropriated retained earnings	6(19)		49,140	$\overline{4}$	81,802	6		5
Other equity interest
Other equity interest		$\overline{(}$	1,652)		595			1)
Total equity attributable to
owners of the parent			1,198,227	95	1,248,267	93		94
Non-controlling interest			3	÷	4	$\overline{\phantom{a}}$		$\overline{a}$
Total equity			1,198,230	95	1,248,271	93		94
Significant contingent liabilities unrecognised contract and commitments	9
Total liabilities and equity		S	1,263,963		1,336,791			100
	Liabilities and Equity Current liabilities Notes payable Accounts payable Other payables Current income tax liabilities	6(9) 6(19)	Notes \$	AMOUNT 5,645 6,792 26,190 5,263 1,041	September 30, 2016 $\frac{0}{0}$ ۰ 1 $\overline{2}$	AMOUNT $\mathbb{S}$ 8,438 4,448 39,137 5,511 100 \$	December 31, 2015 $\%$ 3	September 30, 2015 AMOUNT 1 S 6,182 10,474 31,264 283,187 50,132 64,232 $1,003$ ( 1,231,105 4 1,231,109 100S 1,305,770

The accompanying notes are an integral part of these consolidated financial statements. See review report of independent accountants dated November 11, 2016.

DAVICOM SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Expressed in thousands of New Taiwan dollars, except for earnings per share amounts)
(Unaudited)

					September 30		For the three-month periods ended			For the nine-month periods ended	September 30
				2016			2015			2016			2015
	Items	Notes		AMOUNT	$\frac{0}{6}$		AMOUNT	$\frac{0}{6}$		AMOUNT	$\frac{0}{6}$		AMOUNT	$\frac{0}{6}$
4000	Sales revenue		\$	76,450	100	$\overline{\mathbb{S}}$	79,241	100	S	234,952	100	S	238,630	100
5000	Operating costs	6(5)(17)(18)		23,236)	31)		26,008)	33)		71,273)	30)		76,284)	32)
5900	Gross profit from operations			53,214	69		53,233	67		163,679	70		162,346	68
	Operating expenses	6(17)(18) and 7
6100	Selling expenses			$8,462)$ (	$11)$ (		$8,621)$ (	11)		24,852) (	$11)$ (		$24,524$ ) (	10)
6200	Administrative expenses			$11,826$ (	$15)$ (		$13,603)$ (	17)		34,394) (	$15)$ (		37,945) (	16)
6300	Research and development
	expenses			18,937)	25)		21,369)	27)		57,410)	24)		$61,147$ ) (	26)
6000 6900	Total operating expenses			39,225 13,989	51) 18		43,593 9,640	$\overline{55}$ 12		116,656) 47,023	50) 20		123,616) 38,730	$\overline{52}$ 16
	Net operating income Non-operating income and
	expenses
7010	Other income	6(7)		8,724	12		7,312	10		20,397	9		19,712	8
7020	Other gains and losses	6(16)		$8,274)$ (	11)		15,128	19		$11,260$ (	5)		18,490	8
7050	Finance cost			9)	- (		10)	¥		26)	- (		30)
7060	Share of loss of associates and
	joint ventures accounted for using equity method												4,499)	2)
7000	Total non-operating income
	and expenses			441			22,430	29		9,111	4		33,673	14
7900	Profit before income tax			14,430	19		32,070	41		56,134	$\overline{24}$		72,403	30
7950	Income tax expense	6(19)		1,196)	2)		3,731)	5)		7,353)	3)		8,335)	3)
8000	Profit from continuing operations			13,234	17 $\overline{17}$		28,339 28,339	36 36	$\overline{\mathbb{S}}$	48,781 48,781	$\overline{21}$ $\overline{21}$	S	64,068	27 $\overline{27}$
8200	Profit for the period			13,234		\$							64,068
	Components of other comprehensive income that
	will be reclassified to profit or
	loss
8361	Exchange differences on
	translation of foreign		(	$3,204)$ (	$4)$ \$		5,780	7	(S)	$5,665$ ) (	2) S		3,067	1
8362	financial statements Unrealised (losses) gains on	6(2)
	valuation of available-for-
	sale financial assets			862	1(		$9,259$ (	11)		3,539	1(		$6,938$ ) (	3)
8399	Income tax related to	6(19)
	components of other
	comprehensive income (loss) that will be
	reclassified to profit or loss			203)			892			121)			782
8360	Total components of other
	comprehensive income
	(loss) that will be
	reclassified to profit or												$3,089$ (
8500	10SS Total comprehensive income			$2,545$ ) ( 10,689	$3)$ ( 14	\$	$2,587$ ( 25,752	3) 33	\$	$2,247$ ( 46,534	$1)$ ( $\overline{20}$	\$	60,979	1) $\overline{26}$
	Profit attributable to:
8610	Owners of parent		S	13,235	17	S	28,339	36	S	48,782	21	S	64,068	27
8620	Non-controlling interest			1)						$_{1}$
				13,234	17	$\overline{\mathbb{S}}$	28,339	36		48,781	$\overline{21}$	$\overline{\mathbb{S}}$	64,068	$\overline{27}$
	Comprehensive income
	attributable to:		\$	10,690	14	\$	25,752	33	S	46,535	20	S	60,979	26
8710 8720	Owners of parent Non-controlling interest			1						1)
				10,689	14	$\overline{\mathbb{S}}$	25,752	$\overline{33}$		46,534	$\overline{20}$	$\overline{\mathbb{S}}$	60,979	$\overline{26}$
	Basic earnings per share	6(20)
9750	Profit for the period		\$		0.16	\$		0.34	\$		0.59	\$		0.77
	Diluted earnings per share	6(20)
9850	Profit for the period		\$		0.16	$\mathbb{S}$		0.34	\$		0.58	$\mathbb{S}$		0.76

The accompanying notes are an integral part of these consolidated financial statements.
See review report of independent accountants dated November 11, 2016.

							Equity attributable to owners of the parent CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Expressed in thousands of New Taiwan dollars) DAVICOM SEMICONDUCTOR. INC. AND SUBSIDIARIES (Unaudited)
					Capital Surplus			Retained Earnings				Other Equity Interest
	Notes	Common stock	Additional paid-in capital	stock options Employees'		Others	reserve Legal	Special reserve		Unappropriated retained earnings	translation of differences operations Exchange foreign from		available-for- sale financial Unrealised losses on gains or assets	Total		controlling interest Non-	Total equity
Nine months ended September 30, 2015
Balance at January 1, 2015		\$832,151	\$276,505	S	39,392		43,216 iA	sA	358	69,164 S,	s	5,912	1,820) అ	1,264,878 u	ø	₩	\$1,264,882
Profit for the period										64,608				64,068				64,068
Other comprehensive loss for the period												3,067)	6,156)	3,089)				3,089)
Appropriations and distribution of 2014 earnings	6(15)
Legal reserve							6,916			6,916)
Special reserve									358	358
Cash dividends										62,442				62,442)				62,442)
Cash dividends distributed from capital surplus	6(15)		33,302											33,302)				33,302)
Exercise of employees' stock options	6(12)	400	1,270		678)									992				992
Balance at September 30, 2015		\$832,551	\$244,473	s	38,714		50,132 w	S		64,232 s,	GA.	8,979	7,976) ی	\$1,231,105	s	А	1,231,109 šĄ
Nine months ended September 30, 2016
Balance at January 1, 2016		\$832,551	\$244,473	se	36,646	2,068	50,132 in,	4A		81,802 S	S.	7,197	6,602) S	1,248,267 Ú9			\$1,248,271
Profit (loss) for the period										48,782				48,782				48,781
Other comprehensive income (loss) for the period												5,665)	3,418	2,247)				2,247)
Appropriations and distribution of 2015 earnings	6(15)
Legal reserve							8,180			8,180)
Cash dividends										73,264)				73.264)				73.264)
Cash dividends distributed from capital surplus	6(15)		23,311											23.311)				23,311)
Employees' stock options expired	6(12)				36,646)	36,646
Balance at September 30, 2016		\$832,551	\$ 221,162	sĄ		38,714 s	58,312 in	W)		49,140 w	S	1,532	3,184) G	1,198,227 s.			1,198,230

The accompanying notes are an integral part of these consolidated financial statements. See review report of independent accountants dated November $11, 2016$ .

$\frac{1}{\sqrt{2}}$

DAVICOM SEMICONDUCTOR INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in thousands of New Taiwan dollars)

(Unaudited)

2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax S 56,134 S 72,403 Adjustments Adjustments to reconcile profit (loss) Depreciation (including investment property) 6(6)(7)(17) 5,232 5,054 Amortisation 6(17) 3,628 4,324 Deferred expense transferred to research and experimental expenses 138 Interest income 1,985) Share of loss accounted for using equity method 4,499 Gain on disposal of available-for-sale financial assets 6(16) 5,035) Gain on disposal of investment accounted for using equity 6(16) method Gain on disposal of property, plant and equipment 6(16) 48 Impairment loss 6(2)(16) 346 Changes in assets / liabilities relating to operating activities Net changes in assets relating to operating activities Notes receivable 476 Accounts receivable 10,750 Other receivables 495) Inventories 600) Prepayments 1,103 Other current assets 3 Net changes in liabilities relating to operating activities Notes payable 2,793) 155 Accounts payable 2.344 2,521 Other payables 12,947) Other current liabilities 101 2,060 Net defined benefit liabilities 7,277) 335 Cash inflow generated from operations 48,259 63,538 Interest received 2,017 3,039 Income taxes paid 9,137) Net cash provided by operating activities 41,139 55,170 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of available-for-sale financial assets 40,742 1,761 Acquisition of property, plant and equipment 6(6) 2,610) Proceeds from disposal of property, plant and equipment 48 Acquisition of available-for-sale financial assets-current Proceeds from disposal of investments accounted using equity method 16,760 Increase in intangible assets 191) Decrease in refundable deposit 4) Increase in other assets 720 97) Net cash provided by (used in) investing activities 37,265 20,732 CASH FLOWS FROM FINANCING ACTIVITIES Decrease in guarantee deposits received Payments of cash dividends 6(15) 96,575) Proceeds from exercise of employees' stock options 992 Net cash used in financing activities 96,575) Effect of foreign exchange rate changes on cash and cash equivalents 5,664) 3,068 Net decrease in cash and cash equivalents 23,835) Cash and cash equivalents at beginning of period 896,535 916,368 Cash and cash equivalents at end of period 872,700 859,098 S	Notes	For the nine-month periods ended	September 30
3,030) 540) 11,156) 5,599) 2,813) 2,517) 442) 64) 2,266) 11,407) 162) 38,994) 24) 95,744) 94,776) 57,270)

The accompanying notes are an integral part of these consolidated financial statements. See review report of independent accountants dated November 11, 2016.

DAVICOM SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS. EXCEPT AS OTHERWISE INDICATED) (UNAUDITED)

1. HISTORY AND ORGANIZATION

Davicom Semiconductor, Inc. (collectively referred herein as the "Company") was incorporated as a corporation under provisions of the Company Act of the Republic of China (R.O.C.). The Company and its subsidiaries (collectively referred herein as the "Group") are primarily engaged in the research, development, production, manufacturing and sales of communications network ICs.

2. THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORIZATION

These consolidated financial statements were reported to the Board of Directors on November 11, 2016.

• 1. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS
• (1) Effect of the adoption of new issuance of or amendments to International Financial Reporting Standards ("IFRS") as endorsed by the Financial Supervisory Commission ("FSC") None.
• (2) Effect of new issuances of or amendments to IFRS as endorsed by the FSC but not yet adopted by the Company

New standards, interpretations and amendments endorsed by FSC effective from 2017 are as follows:

New Standards, Interpretations and Amendments	Effective Date by International Accounting Standards Board
Investment entities: applying the consolidation exception (amendments to IFRS 10, IFRS 12 and IAS 28)	January 1, 2016
Accounting for acquisition of interests in joint operations (amendments to IFRS 11)	January 1, 2016
IFRS 14, 'Regulatory deferral accounts'	January 1, 2016
Disclosure initiative (amendments to IAS 1)	January 1, 2016
Clarification of acceptable methods of depreciation and amortisation (amendments to IAS 16 and IAS 38)	January 1, 2016
Agriculture: bearer plants (amendments to IAS 16 and IAS 41)	January 1, 2016
Defined benefit plans: employee contributions (amendments to IAS 19R)	July 1, 2014

New Standards, Interpretations and Amendments	Effective Date by International Accounting Standards Board
Equity method in separate financial statements (amendments to IAS 27)	January 1, 2016
Recoverable amount disclosures for non-financial assets (amendments to IAS 36)	January 1, 2014
Novation of derivatives and continuation of hedge accounting (amendments to IAS 39)	January 1, 2014
IFRIC 21, 'Levies'	January 1, 2014
Improvements to IFRSs 2010-2012	July 1, 2014
Improvements to IFRSs 2011-2013	July 1, 2014
Improvements to IFRSs 2012-2014	January 1, 2016

The above standards and interpretations have no significant impact to the Group's financial condition and operating result based on the Group's assessment. The quantitative impact will be disclosed when the assessment is complete.

(3) IFRS issued by IASB but not yet endorsed by the FSC

New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs endorsed by the FSC effective from 2017 are as follows:

New Standards, Interpretations and Amendments	Effective Date by International Accounting Standards Board
Classification and measurement of share-based payment transactions (amendments to IFRS 2)	January 1, 2018
Applying IFRS 9, 'Financial instruments' with IFRS 4, 'Insurance contracts' (amendments to IFRS 4)	January 1, 2018
IFRS 9, 'Financial instruments'	January 1, 2018
Sale or contribution of assets between an investor and its associate or joint venture (amendments to IFRS 10 and IAS 28)	To be determined by International Accounting Standards Board
IFRS 15, 'Revenue from contracts with customers'	January 1, 2018
Clarifications to IFRS 15, 'Revenue from contracts with customers' (amendments to IFRS 15)	January 1, 2018
IFRS 16, 'Leases'	January 1, 2019
Disclosure initiative (amendments to IAS 7)	January 1, 2017
Recognition of deferred tax assets for unrealised losses (amendments to IAS 12)	January 1, 2017

Except for the following, the above standards and interpretations have no significant impact to the Group's financial condition and operating result based on the Group's assessment. The quantitative impact will be disclosed when the assessment is complete.

A. IFRS 9, 'Financial instruments'

• (a) Classification of debt instruments is driven by the entity's business model and the contractual cash flow characteristics of the financial assets, which would be classified as financial asset at fair value through profit or loss, financial asset measured at fair value through other comprehensive income or financial asset measured at amortised cost. Equity instruments would be classified as financial asset at fair value through profit or loss, unless an entity makes an irrevocable election at inception to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument that is not held for trading.
• (b) The impairment losses of debt instruments are assessed using an 'expected credit loss' approach. An entity assesses at each balance sheet date whether there has been a significant increase in credit risk on that instrument since initial recognition to recognise 12-month expected credit losses ('ECL') or lifetime ECL (interest revenue would be calculated on the gross carrying amount of the asset before impairment losses occurred); or if the instrument that has objective evidence of impairment, interest revenue after the impairment would be calculated on the book value of net carrying amount (i.e. net of credit allowance).
• (c) The amended general hedge accounting requirements align hedge accounting more closely with an entity's risk management strategy. Risk components of non-financial items and a group of items can be designated as hedged items. The standard relaxes the requirements for hedge effectiveness, removing the 80-125% bright line, and introduces the concept of 'rebalancing'; while its risk management objective remains unchanged, an entity shall rebalance the hedged item or the hedging instrument for the purpose of maintaining the hedge ratio.
• B. IFRS 15, 'Revenue from contracts with customers'

IFRS 15, 'Revenue from contracts with customers' replaces IAS 11, 'Construction Contracts', IAS 18, 'Revenue' and relevant interpretations. According to IFRS 15, revenue is recognised when a customer obtains control of promised goods or services. A customer obtains control of goods or services when a customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.

The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps:

Step 1: Identify contracts with customer

Step 2: Identify separate performance obligations in the contract(s)

Step 3:Determine the transaction price

Step 4: Allocate the transaction price.

Step 5: Recognise revenue when the performance obligation is satisfied.

Further, IFRS 15 includes a set of comprehensive disclosure requirements that requires an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

• C. Amendments to IFRS 15, 'Clarifications to IFRS 15 Revenue from Contracts with Customers' The amendments clarify how to identify a performance obligation (the promise to transfer a good or a service to a customer) in a contract; determine whether a company is a principal (the provider of a good or service) or an agent (responsible for arranging for the good or service to be provided); and determine whether the revenue from granting a license should be recognised at a point in time or over time. In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new Standard.
• D. IFRS 16, 'Leases'

IFRS 16, 'Leases', replaces IAS 17, 'Leases' and related interpretations and SICs. The standard requires lessees to recognise a 'right-of-use asset' and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

• (1) Compliance statement
• A. The consolidated financial statements of the Group have been prepared in accordance with the "Regulations Governing the Preparation of Financial Reports by Securities Issuers" and IAS 34, 'Interim Financial Reporting' endorsed by the FSC.
• B. The consolidated financial statements should be read together with the consolidated financial statements for the year ended December 31, 2015.
• (2) Basis of preparation

• A. Except for the following items, the consolidated financial statements have been prepared under the historical cost convention:

  • (a) Available-for-sale financial assets measured at fair value.

• (b) Defined benefit liabilities recognised based on the net amount of pension fund assets less present value of defined benefit obligation.

• B. The preparation of financial statements in conformity with International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the "IFRSs") requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.
• (3) Basis of consolidation
• A. Basis for preparation of consolidated financial statements:
  • (a) All subsidiaries are included in the Group's consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.
  • (b) Inter-company transactions, balances and unrealised gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.
  • (c) Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the noncontrolling interests having a deficit balance.
  • (d) Changes in a parent's ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity.
  • (e) When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. That fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair value and carrying amount is recognised in profit or loss. All amounts previously recognised in other comprehensive income in relation to the subsidiary are reclassified to profit or loss on the same basis as would be required if the related assets or liabilities were disposed of. That is, when the Group loses control of a subsidiary, all gains or

losses previously recognised in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or loss, if such gains or losses would be reclassified to profit or loss when the related assets or liabilities are disposed of.

B. Subsidiaries included in the consolidated financial statements:

				Ownership $(\% )$
Name of investor	Name of subsidiary	Main business activities	2016	September 30, December 31, 2015	September 30, 2015	Description
Davicom Semiconductor, Inc.	Medicom Corp.	Manufacturing and designing of IC	99.36	99.36	0.00	Note 3
Davicom Semiconductor, Inc.	Davicom Investment Inc.	General investment	100.00	100.00	0.00	Notes 2 and 3
Davicom Semiconductor, Inc.	TSCC Inc.	Reinvestment business	100.00	100.00	0.00	Note 3
TSCC Inc.	JUBILINK LIMITED	Reinvestment business	100.00	100.00	0.00	Note 3
TSCC Inc.	DAVICOM IC (SuZHou) Co.LTD	Manufacturing and designing of IC	100.00	100.00	0.00	Notes 1 and 3

• Note 1: The principal operations have not commenced. The subsidiary is engaged in sales and agent services.
• Note 2: On November 16, 2015, Davicom Investment Inc. reduced capital by \$10,000 to offset accumulated losses. In addition, on November 18, 2015, Davicom Investment Inc. increased capital by \$90,000 and was fully subscribed by the Company.
• Note 3: Those subsidiaries' financial statements as of September 30, 2016 and 2015 were not reviewed by independent accountants as those subsidiaries did not meet the definition of significant subsidiaries.
• C. Subsidiaries not included in the consolidated financial statements: None.
• D. Adjustments for subsidiaries with different balance sheet dates: None.
• E. Significant restrictions on fund remittance from subsidiaries to the parent company: None.
• F. Subsidiaries that have non-controlling interests that are material to the Group: None.
• (4) Foreign currency translation

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in New Taiwan Dollars, which is the Company's functional and the Group's presentation currency.

• A. Foreign currency transactions and balances

• (a) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in profit or loss in the period in which they arise.

• (b) Monetary assets and liabilities denominated in foreign currencies at the period end are retranslated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognised in profit or loss.

• (c) Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognised in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognised in other comprehensive income. However, nonmonetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions.
• (d) All other foreign exchange gains and losses based on the nature of those transactions are presented in the statement of comprehensive income within 'other gains and losses'.
• B. Translation of foreign operations
• (a) The operating results and financial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
  • i. Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet;
  • ii. Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and
  • iii. All resulting exchange differences are recognised in other comprehensive income.
• (b) When the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange differences that were recorded in other comprehensive income are proportionately transferred to the non-controlling interest in this foreign operation. In addition, even the Group still retains partial interest in the former foreign subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as disposal of all interest in the foreign operation.
• (5) Classification of current and non-current items

• A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:

  • (a) Assets arising from operating activities that are expected to be realised, or are intended to be sold or consumed within the normal operating cycle;
  • (b) Assets held mainly for trading purposes;
  • (c) Assets that are expected to be realised within twelve months from the balance sheet date;

• (d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to pay off liabilities more than twelve months after the balance sheet date.

• B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:
• (a) Liabilities that are expected to be paid off within the normal operating cycle;
• (b) Liabilities arising mainly from trading activities;
• (c) Liabilities that are to be paid off within twelve months from the balance sheet date;
• (d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
• (6) Cash equivalents

Cash equivalents refer to short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Time deposits that meet the definition above and are held for the purpose of meeting short-term cash commitments in operations are classified as cash equivalents.

• (7) Available-for-sale financial assets
• A. Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories.
• B. On a regular way purchase or sale basis, available-for-sale financial assets are recognised and derecognised using trade date accounting.
• C. Available-for-sale financial assets are initially recognised at fair value plus transaction costs. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognised in other comprehensive income. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are presented in 'financial assets measured at cost'.
• (8) Receivables

Accounts receivable are loans and receivables originated by the entity. They are created by the entity by selling goods or providing services to customers in the ordinary course of business. Accounts receivable are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. However, short-term accounts receivable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

• (9) Impairment of financial assets
• A. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
• B. The criteria that the Group uses to determine whether there is objective evidence of an impairment loss is as follows:
  • (a) Significant financial difficulty of the issuer or debtor;
  • (b) The disappearance of an active market for that financial asset because of financial difficulties;
  • (c) Information about significant changes with an adverse effect that have taken place in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered;
  • (d) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
• C. When the Group assess that there has been objective evidence of impairment and an impairment loss has occurred, accounting treatment for impairment is as follows:
  • (a) Financial assets measured at amortised cost

The amount of the impairment loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate, and is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortised cost that would have been at the date of reversal had the impairment loss not been recognised previously. Impairment loss is recognised and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

(b) Financial assets carried at cost

The amount of the impairment loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at current market return rate of similar financial asset, and is recognised in profit or loss. Impairment loss recognised for this category shall not be reversed subsequently. Impairment loss is recognised by adjusting the carrying amount of the asset through the use of an impairment allowance account.

(c) Available-for-sale financial assets

The amount of the impairment loss is measured as the difference between the asset's acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss, and is reclassified from 'other comprehensive income' to 'profit or loss'. Impairment loss of an investment in an equity instrument recognised in profit or loss shall not be reversed through profit or loss. Impairment loss is recognised and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

(10) Derecognition of financial assets

The Group derecognises a financial asset when the contractual rights to receive the cash flows from the financial asset expire.

$(11)$ Inventory

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted-average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (allocated based on normal operating capacity). The item by item approach is used in applying the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses.

(12) Investments accounted for using equity method / associates

• A. Associates are all entities over which the Group has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 percent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognised at cost.
• B. The Group's share of its associates' post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
• C. When changes in an associate's equity that are not recognised in profit or loss or other comprehensive income of the associate and such changes not affecting the Group's ownership percentage of the associate, the Group recognises change in ownership interests in the associate in 'capital surplus' in proportion to its ownership.
• D. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of

associates have been adjusted where necessary to ensure consistency with the policies adopted by the Group.

• E. In the case that an associate issues new shares and the Group does not subscribe or acquire new shares proportionately, which results in a change in the Group's ownership percentage of the associate but maintains significant influence on the associate, then 'capital surplus' a 'investments accounted for under the equity method' shall be adjusted for the increase or decrease of its share of equity interest. If the above condition causes a decrease in the Group's ownership percentage of the associate, in addition to the above adjustment, the amounts previously recognised in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately on the same basis as would be required if the relevant assets or liabilities were disposed of.
• F. Upon loss of significant influence over an associate, the Group remeasures any investment retained in the former associate at its fair value. Any difference between fair value and carrying amount is recognised in profit or loss.
• G. When the Group disposes its investment in an associate, if it loses significant influence over this associate, the amounts previously recognised in other comprehensive income in relation to the associate, are reclassified to profit or loss, on the same basis as would be required if the relevant assets or liabilities were disposed of. If it still retains significant influence over this associate, then the amounts previously recognised in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately in accordance with the aforementioned approach.
• H. When the Group disposes its investment in an associate, if it loses significant influence over this associate, the amounts previously recognised as capital surplus in relation to the associate are transferred to profit or loss. If it still retains significant influence over this associate, then the amounts previously recognised as capital surplus in relation to the associate are transferred to profit or loss proportionately.

(13) Property, plant and equipment

• A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalised.
• B. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.
• C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives.

Each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of the item must be depreciated separately.

D. The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year-end. If expectations for the assets' residual values and useful lives differ from previous estimates or the patterns of consumption of the assets' future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, 'Accounting Policies, Changes in Accounting Estimates and Errors', from the date of the change. The estimated useful lives of property, plant and equipment are as follows:

Buildings and Structures	50 years
Computer communications equipment	$2 \sim 6$ years
Transportation equipment	5 years
Other equipment	$3 \sim 4$ years

(14) Investment property

An investment property is stated initially at its cost and measured subsequently using the cost model. Investment property is depreciated on a straight-line basis over its estimated useful life of 50 years.

(15) Operating leases (lessee/lessor)

Payments made under an operating lease (net of any incentives received from the lessor) are recognised in profit or loss on a straight-line basis over the lease term.

(16) Intangible assets

Computer software is stated at cost and amortised on a straight-line basis over its estimated useful life of 3 to 5 years.

(17) Impairment of non-financial assets

The Group assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell or value in use. When the circumstances or reasons for recognising impairment loss for an asset in prior years no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognised.

(18) Notes and accounts payable

Notes and accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. However, short-term

accounts payable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(19) Employee benefit

A. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognised as expenses in that period when the employees render service.

• B. Pensions
• (a) Defined contribution plans

For defined contribution plans, the contributions are recognised as pension expenses when they are due on an accrual basis. Prepaid contributions are recognised as an asset to the extent of a cash refund or a reduction in the future payments.

• (b) Defined benefit plans
• i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The defined benefit net obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of government bonds (at the balance sheet date) of a currency and term consistent with the currency and term of the employment benefit obligations.
• ii. Remeasurement arising on defined benefit plans are recognised in other comprehensive income in the period in which they arise and are recorded as retained earnings.
• iii. Pension cost for the interim period is calculated on a year-to-date basis by using the pension cost rate derived from the actuarial valuation at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant curtailments, settlements, or other significant one-off events. And, the related information is disclosed accordingly.
• C. Employees' compensation and directors' and supervisors' remuneration

Employees' compensation and directors' and supervisors' remuneration are recognised as expenses and liabilities, provided that such recognition is required under legal obligation or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates. If employees' compensation is paid by shares, the Group calculates the number of shares based on the closing price at the previous day of the board meeting resolution.

(20) Employee share-based-payment

For the equity-settled share-based payment arrangements, the employee services received are measured at the fair value of the equity instruments granted at the grant date, and are recognised as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and non-market vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. And ultimately, the amount of compensation cost recognised is based on the number of equity instruments that eventually vest.

$(21)$ Income tax

• A. The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or items recognised directly in equity, in which cases the tax is recognised in other comprehensive income or equity.
• B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.
• C. Deferred tax is recognised, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. However, the deferred tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

• D. Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. At each balance sheet date, unrecognised and recognised deferred tax assets are reassessed.

• E. Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Deferred tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realise the asset and settle the liability simultaneously.

• F. The interim period income tax expense is recognised based on the estimated average annual effective income tax rate expected for the full financial year applied to the pretax income of the interim period, and the related information is disclosed accordingly.

(22) Share capital

• A. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or stock options are shown in equity as a deduction, net of tax, from the proceeds.
• B. Where the Company repurchases the Company's equity share capital that has been issued, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company's equity holders. Where such shares are subsequently reissued, the difference between their book value and any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company's equity holders.
• (23) Dividends

Dividends are recorded in the Company's financial statements in the period in which they are resolved by the Company's shareholders. Cash dividends are recorded as liabilities; stock dividends are recorded as stock dividends to be distributed and are reclassified to ordinary shares on the effective date of new shares issuance.

(24) Revenue recognition

The Group manufactures and sells communications network ICs. Revenue is measured at the fair value of the consideration received or receivable taking into account of value-added tax, returns, rebates and discounts for the sale of goods to external customers in the ordinary course of the Group's activities. Revenue arising from the sales of goods should be recognised when the Group has delivered the goods to the customer, the amount of sales revenue can be measured reliably and it is probable that the future economic benefits associated with the transaction will flow to the entity. The delivery of goods is completed when the significant risks and rewards of ownership have been transferred to the customer, the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and the customer has accepted the goods based on the sales contract or there is objective evidence showing that all acceptance provisions have been satisfied.

(25) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The Group's chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments.

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY

The preparation of these consolidated financial statements requires management to make critical judgements in applying the Group's accounting policies and make critical assumptions and estimates concerning future events. Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on historical experience and other factors. Such assumptions and estimates have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year; and the related information is addressed below:

(1) Critical judgements in applying the Group's accounting policies

None.

(2) Critical accounting estimates and assumptions

Evaluation of inventories

As inventories are stated at the lower of cost and net realisable value, the Group must determine the net realisable value of inventories on balance sheet date using judgements and estimates. Due to the rapid technology innovation, the Group evaluates the amounts of normal inventory consumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realisable value. Such an evaluation of inventories is principally based on the demand for the products within the specified period in the future. Therefore, there might be material changes to the evaluation.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

	September 30, 2016	December 31, 2015	September 30, 2015
Cash on hand	63	62	65
Checking accounts and demand deposits	484,359	347,626	222,845
Time deposits	388,278	548,847	636,188
	872,700	896,535	859,098

A. The Group transacts with a variety of financial institutions all with high credit quality to disperse credit risk, so it expects that the probability of counterparty default is remote.

B. The Group has no cash and cash equivalents pledged to others.

(2) Available-for-sale financial assets

Items		September 30, 2016		December 31, 2015		September 30, 2015
Current items:
Listed stocks	S	6,171	S	39,295	S	38,994
Valuation adjustment		188)		2,935)		4,011)
Total		5,983	S	36,360		34,983
Non-current items:
Unlisted stocks	\$	39,761	S	39,761	\$	39,761
Emerging stocks		18,908		21,446		21,446
Subtotal		58,669		61,207		61,207
Valuation adjustment		$4,513)$ (		5,260		5,120
Accumulated impairment		$4,846)$ (		4,500		4,500)
Total		49,310	S	51,447		51,587

A. The Group recognised \$659, (\$8,367), \$3,418 and (\$6,156) in other comprehensive income for fair value change and reclassified \$1,416, \$0, \$1,460 and \$0 from equity to profit or loss for the three months and nine months ended September 30, 2016 and 2015, respectively.

• B. The Group assessed and recognised impairment loss of \$0, \$0, \$346 and \$0 on equity investments, MTECH Corporation, for the three months and nine months ended September 30, 2016 and 2015, respectively.
• C. As of September 30, 2016, December 31, 2015, September 30, 2015, the Group has no availablefor-sale financial assets pledged to others.
• (3) Financial assets measured at cost

Items	September 30, 2016		December 31, 2015		September 30, 2015
Non-current items:
Global Mobile Corp.	15,449	S	15,449	S	15,449
Accumulated impairment	15,449)		15,449)		13,763)
	Y.		u		1,686

A. According to the Group's intention, its investment in Global Mobile Corp. stocks should be classified as available-for-sale financial assets. However, as Global Mobile Corp. stocks are not traded in active market, and no sufficient industry information of companies similar to Global Mobile Corp. or Global Mobile Corp.'s financial information cannot be obtained, the fair value of the investment in Global Mobile Corp. stocks cannot be measured reliably. The Group classified those stocks as 'financial assets measured at cost'.

• B. The Group assessed and recognised impairment loss of \$1,686 on equity investments-Global Mobile Corp. for the year ended December 31, 2015.
• C. As of September 30, 2016, December 31, 2015 and September 30, 2015 no financial assets measured at cost held by the Group were pledged to others.
• (4) Accounts receivable

	September 30, 2016	December 31, 2015 September 30, 2015
Accounts receivable	42,003	52,753 \$	49,799

• A. As of September 30, 2016, December 31, 2015 and September 30, 2015, the Group has no impairment loss on accounts receivable.
• B. For information on the credit quality of financial assets that are neither past due nor impaired and the ageing analysis of accounts receivable that were past due but not impaired, please refer to Note 12(2) C.

(5) Inventories

				September 30, 2016
		Cost		Allowance for valuation loss	Book value
Work in process	S	28,563 (\$		$13,264$ ) \$	15,299
Finished goods		24,694		9,258	15,436
		53,257	(S)	$22,522$ ) \$	30,735

		$DU$ ullioul $J1$ , $\angle U1U$
		Allowance for
	Cost	valuation loss	Book value
Work in process	\$ 26,683 (\$	$13,515$ ) \$	13,168
Finished goods	25,974	9,007	16,967
	52,657	$22,522$ ) \$	30,135

December 31, 2016

	September 30, 2015
Work in process		Allowance for Book value valuation loss Cost
	S	29,007	(S	$13,365$ ) \$		15,642
Finished goods		26,727		8,157)		18,570
		55,734	(S	21,522)		34,212

The cost of inventories recognised as expense for the period:

		Three months ended September 30,
		2016	2015
Cost of goods sold		23,236	26,008
			Nine months ended September 30,
		2016	2015
Cost of goods sold	¢	71,273	76,284

(6) Property, plant and equipment

		Buildings		Computer communications equipment	Transportation equipment		Other equipment		Total
At January 1, 2016
Cost	\$	169,883 \$		1,486 \$	1,090 \$		850 \$		173,309
Accumulated depreciation		$39,116$ )(		$1,139$ $($	$1,090$ $($		429(		41,774)
		130,767 \$		347 \$		S	421		131,535
Nine months ended September 30, 2016
Opening net book amount as at January 1	S	130,767	\$	347S	ä,	S	421 \$		131,535
Additions					2,325		285		2,610
Depreciation charge		$2,499$ )(		155(	226(		161)		3,041)
Closing net book amount as at September 30		128,268	S	192S	2,099 \$		545	S	131,104
At September 30, 2016
Cost	S	169,883 \$		1,486 \$	3,415 \$		1,135 \$		175,919
Accumulated depreciation		$41,615$ (		$1,294$ (	$1,316$ (		590(		44,815)
	S	128,268 \$		192 \$	2,099	S	545	\$	131,104

			Computer
			communications	Transportation	Other
		Buildings	equipment	equipment	equipment		Total
At January 1, 2015
Cost	$\mathbb{S}$	169,963 \$	1,486 \$	$1,090$ \$		784 \$	173,323
Accumulated depreciation		35,838)(	898(	$1,090$ $($		$323$ )(	38,149)
	S	$134, 125$ \$		$588S$ $- S$		461 \$	135,174
Nine months ended September 30, 2015
Opening net book amount as
at January 1	S	134,125 \$	588 S	- \$		461 \$	135,174
Additions						162	162
Depreciation charge		$2,519$ )(	181)	$ ($		$147$ )(	2,847)
Closing net book amount as at September 30	S	131,606 \$		$-$ \$ 407 \$		476 \$	132,489
At September 30, 2015
Cost	\$	169,963 \$	1,486 \$	$1,090$ \$		946 \$	173,485
Accumulated depreciation		$38,357$ )(	$1,079$ $($	$1,090$ $($		470(	40,996)
	\$	131,606 \$	407 \$	$-$ \$		476 S	132,489
(7) Investment property
Buildings
At January 1					2016		2015
Cost				S	148,907	$\mathbb{S}$	148,977
Accumulated depreciation					34,286) (		31,413)
				S	114,621	S	117,564
Opening net book amount as at January 1				\$	114,621	$\mathbb{S}$	117,564
Depreciation charge					$2,191)$ (		2,207
Closing net book amount as at June 30					112,430	S	115,357
At September 30
Cost				S	148,907	S	148,977
Accumulated depreciation					36,477)		33,620)
					112,430 \$		115,357

$\sim$

A. Rental income from investment property and direct operating expenses arising from investment property are shown below:

	Three months ended September 30,
	2016		2015
Rental income from investment property	5,130	S	5,297
Direct operating expenses arising from the investment property that generated rental income during the period	$1,193)$ (\$		1,271)
			Nine months ended September 30,
	2016		2015
Rental income from investment property	15,588		15,838

B. The fair value of the investment property held by the Group as at September 30, 2016, December 31, 2015 and September 30, 2015 was \$179,362, \$179,362 and \$185,522, respectively, which was valued by independent valuers on December 31, 2015 and 2014. Valuations were made using the cost approach and income approach in a weight ratio of 50% for each approach which is categorised within Level 3 in the fair value hierarchy. Key assumptions are as follows:

		Overall capital interest rate		Earning power of real assets		Ratio of salvage value
Cost approach		1.44% Growth rate		15.00% Capitalisation rate		5.00% Discount rate
Income approach		1.30%		$6.00\%$		5.11% September 30, 2015 11,963 9,702 1,476
(8) Other non-current assets
		September 30, 2016		December 31, 2015
Deferred charges	$$\mathbb{S}$$	6,547	S	9,363	S
Overdue receivables		9,702		9,702
Guarantee deposits paid		74		70
Less: Allowance for
uncollectible accounts		9,702)		9,702)		9,702)
		6,621	S	9,433		13,439

(9) Other payables

		September 30, 2016		December 31, 2015	September 30, 2015
Wages and bonus payable	S	17,766	S	29,122 \$	22,562
Processing fees payable		3,437		3,745	3,601
Others		4,987		6,270	5,101
		26,190	S	39,137 \$	31,264
(10) Other non-current liabilities
	September 30, 2016			December 31, 2015	September 30, 2015
Accrued liabilities of defined
benefit plan	\$	16,100	S	23,377 \$	20,008
Guarantee deposits received		2,930		2,930	2,930
		19,030		26,307	22,938

$(11)$ Pensions

• A. (a) The Company has a defined benefit pension plan in accordance with the Labor Standards Law, covering all regular employees' service years prior to the enforcement of the Labor Pension Act on July 1, 2005 and service years thereafter of employees who chose to continue to be subject to the pension mechanism under the Law. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6 months prior to retirement. The Company contributes monthly an amount equal to 2% of the employees' monthly salaries and wages to the retirement fund deposited with Bank of Taiwan, the trustee, under the name of the independent retirement fund committee. Also, the Company would assess the balance in the aforementioned labor pension reserve account by the end of December 31, every year. If the account balance is insufficient to pay the pension calculated by the aforementioned method, to the employees expected to be qualified for retirement next year, the Company will make contributions to cover the deficit by next March.
• (b) For the aforementioned pension plan, the Group recognised pension costs of \$72, \$117, \$215 and \$352 for the three months and nine months ended September 30, 2016 and 2015, respectively.

• (c) Expected contributions to the defined benefit pension plans of the Group for the year ending December 31, 2017 amounts to \$283.

• B. (a) Effective July 1, 2005, the Company and its domestic subsidiaries have established a defined contribution pension plan (the "New Plan") under the Labor Pension Act (the "Act"), covering all regular employees with R.O.C. nationality. Under the New Plan, the Company contributes monthly an amount based on 6% of the employees' monthly salaries and wages to the employees' individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment.

• (b) The Company's sub-subsidiary, DAVICOM IC (SuZHou) Co. LTD, has a defined contribution plan. Monthly contributions to an independent fund administered by the government in accordance with the pension regulations in the People's Republic of China (PRC) are based on certain percentage of employees' monthly salaries and wages. Other than the monthly contributions, the Group has no further obligations.
• (c) The pension costs under defined contribution pension plans of the Group for the three months and nine months ended September 30, 2016 and 2015, were \$1,271, \$1,294, \$3,799 and \$3,842, respectively.

(12) Share-based payment

A. For the nine months ended September 30, 2016 and 2015, the Group's share-based payment arrangements were as follows:

Type of arrangement	Grant date	Quantity granted Contract period Vesting conditions
Employee stock	2008.06.26	5,108	8 years	2~4 years' service
options		(share in thousands)

B. Details of the share-based payment arrangements are as follows:

				Nine months ended September 30,
		2016		2015
	No. of options share in thousands		Weighted-average exercise price (in dollars)	No. of options share in thousands	Weighted-average exercise price (in dollars)
Options outstanding opening					24.80
balance at January 1	$2,162$ \$		23.60	$2,202$ \$
Options exercised			$\omega$	40)	24.80
Options expired	2,162)
Options outstanding at September 30				2,162	23.60
Options exercisable at September 30				2,162

C. The weighted-average stock price of stock options at exercise dates for the nine months ended September 30, 2015 was \$35.64.

• D. As of December 31, 2015 and September 30, 2015, the exercise prices of stock options outstanding was \$23.6 and \$23.6 (in dollars), respectively; the weighted-average remaining contractual period was 0.5 year and 0.75 year, respectively.
• E. The fair value of stock options granted after January 1, 2008, is measured using the Black-Scholes option-pricing model. Relevant information is as follows:

				Expected
Type of arrangement	Grant date	Stock price	Exercise price	price volatility	Expected option life	Expected dividends	Risk-free interest rate	Fair value per unit
Employee stock options	June 26. 2008	\$36.5	\$36.5	54.63	4.37 years	$\bullet$	2.61%	\$16.95

(13) Share capital

As of September 30, 2016, the Company's authorized capital was \$1,200,000, consisting of 120,000 thousand shares of ordinary stock (including 18,000 thousand shares reserved for employee stock options and 400 thousand shares reserved for convertible bonds issued by the Company), and the paid-in capital was \$832,551 with a par value of \$10 (in dollars) per share. All proceeds from shares issued have been collected.

Movements in the number of the Company's ordinary shares outstanding are as follows:

	2016	2015
	(share in thousands)	(share in thousands)
At January 1	83,255	83,215
Employee stock options exercised		40
At September 30	83,255	83,255

(14) Capital surplus

Pursuant to the R.O.C. Company Act, capital surplus arising from paid-in capital in excess of par value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Law requires that the amount of capital surplus to be capitalised mentioned above should not exceed 10% of the paid-in capital each year. Capital surplus should not be used to cover accumulated deficit unless the legal reserve is insufficient.

(15) Retained earnings

A. Under the Company's Articles of Incorporation, the current year's earnings shall first be used to pay all taxes and offset prior years' operating losses and 10% of the remaining amount shall be set aside as legal reserve, then set aside or reverse special reserve in accordance with related regulations. The appropriation of the remainder along with the earnings in prior years shall be proposed by the Board of Directors and resolved by the stockholders' meeting. The Company

shall appropriate all the current distributable earnings, taking into consideration the Company's financials, business and operations. Dividends to shareholders can be distributed in the form of cash or shares and cash dividends to shareholders shall account for at least 30% of the total dividends to shareholders.

• B. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in proportion to their share ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the issuance of stocks or cash to shareholders in proportion to their share ownership is permitted, provided that the distribution of the reserve is limited to the portion in excess of 25% of the Company's paid-in capital.
• C. In accordance with the regulations, the Company shall set aside special reserve from the debit balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings.
• D. The appropriation of 2015 and 2014 earnings was resolved by the shareholders on June 6, 2016 and June 15, 2015, respectively. Details are as follows:

		2015		2014
	Amount		Dividends per share (in dollars)	Amount		Dividends per share (in dollars)
Legal reserve	\$ 8,180			\$ 6,916
(Reversal of) special reserve	۰.			358)
Cash dividends	73,264	S	0.88	62,442	S	0.75

On June 6, 2016 and June 15, 2015, the distribution of cash dividends from capital surplus was approved by the shareholders and amounted to \$23,311 and \$33,302, respectively. The abovementioned appropriation of earnings of 2015 and 2014 was in agreement with those amounts proposed by the Board of Directors on March 7, 2016 and April 29, 2015.

E. For the information relating to employees' compensation (bonuses) and directors' and supervisors' remuneration, please refer to Note 6(18).

(16) Other income and expenses-net

	Three months ended September 30,
		2016		2015
Net currency exchange losses	(S	8,464		16,398
Other losses		$1,226)$ (		1,270)
Impairment losses
Gains on disposal of investments		1,416
Gains on disposal of property, plant and equipment
		8,274		15,128

	Nine months ended September 30,
		2016	2015
Net currency exchange losses	(S	12,281)	10,605
Other losses		$3,716$ $($	3,811)
Impairment losses		346)
Gains on disposal of investments		5,035	11,696
Gains on disposal of property, plant and equipment		48
	(S	11,260	18,490

(17) Expenses by nature

$\mu$ and $\mu$ which was not a second with $\mu$	Nine months ended September 30,
	2016	2015
Changes in finished goods and work-in-process inventory	\$ $2,632$ (\$)	1,587)
Raw materials and supplies used	9,386	13,807
Employee benefit expense	30,438	34,906
Depreciation charges on property, plant and equipment	1,034	951
Amortisation charges	1,116	1,261
Product testing fees	6,401	8,685
Other costs and expenses	11,454	11,578
Operating costs and expenses	62,461	69,601

		Nine months ended September 30,
		2016		2015
Changes in finished goods and work-in-process inventory	S	1,168 \$		2,050
Raw materials and supplies used		33,719		34,334
Employee benefit expense		92,377		98,910
Depreciation charges on property, plant and equipment		3,041		2,847
Amortisation charges		3,628		4,324
Product testing fees		21,819		24,502
Other costs and expenses		32,177		32,933
Operating costs and expenses	S	187,929	S	199,900
(18) Employee benefit expense
		Three months ended September 30, 2016		2015
Wages and salaries	$\mathbb{S}$	26,124 \$		30,609
Labour and health insurance fees		2,100		2,113
Pension costs		1,343		1,413
Other personnel expenses		871		771
	\$	30,438	S	34,906
		Nine months ended September 30,
		2016		2015
Wages and salaries	S	79,591	\$	86,369
Labour and health insurance fees		5,990		6,140
Pension costs		4,014		4,194
Other personnel expenses		2,782		2,207
	S	92,377	S	98,910

A. According to the Articles of Incorporation of the Company, a ratio of gain on current pre-tax profit before deduction of employees' compensation and directors' remuneration, after covering accumulated losses, shall be distributed as employees' compensation and directors' remuneration. The ratio shall not be lower than 8.5% for employees' compensation and shall not be higher than 2% for directors' remuneration.

A company may, by a resolution adopted by a majority vote at a meeting of Board of Directors attended by two-thirds of the total number of directors, have the profit distributable as employees' compensation distributed in the form of shares or in cash; and in addition thereto a report of such distribution shall be submitted to the shareholders' meeting. Directors'

remuneration shall be distrubuted in cash. Qualification requirements of employees, including the employees of subsidiaries of the company meeting certain specific requirements, entitled to receive employees' compensation in the form of stock or cash are set by the Board of Directors.

B. For the three months and nine months ended September 30, 2016 and 2015, employees' compensation was accrued at \$1,365, \$3,715, \$5,331 and \$6,876, respectively; directors' and supervisors' remuneration was accrued at \$323, \$986, \$1,255 and \$1,618, respectively. The aforementioned amounts were recognised in salary expenses.

For the nine months ended September 30, 2016, the employees' compensation and directors' and supervisors' remuneration were estimated and accrued based on 8.5% and 2% of distributable profit of current year as of the end of reporting period.

Employees' compensation and directors' and supervisors' remuneration of 2015 as resolved by the meeting of Board of Directors were in agreement with those amounts recognised in the 2015 financial statements. The employees' compensation and directors' and supervisors' remuneration in the previous year has not been actually distributed.

Information about employees' compensation and directors' and supervisors' remuneration of the Company as approved by the meeting of Board of Directors will be posted in the "Market" Observation Post System" at the website of the Taiwan Stock Exchange.

$(19)$ Income tax

A. Income tax expense

(a) Components of income tax expense:

	Three months ended September 30,
		2016		2015
Current tax:
Current tax on profits for the period	\$	2,116 \$		2,077
Additional 10% income tax imposed on unappropriated earnings
Prior year income tax overestimation
Total current tax		2,116		2,077
Deferred tax:
Origination and reversal of temporary differences (		920)		1,654
Income tax expense		1.196		3,731

	Nine months ended September 30,
		2016	2015
Current tax:
Current tax on profits for the period	S	12,075 S	7,639
Additional 10% income tax imposed on unappropriated earnings		36	16
Prior year income tax overestimation		$3,223)$ (	38)
Total current tax		8,888	7,617
Deferred tax:
Origination and reversal of temporary differences		1,535)	718
Income tax expense	S	7,353	8,335

(b) The income tax (charge)/credit relating to components of other comprehensive income is as follows:

	Three months ended September 30,
	2016	2015
Fair value gains (losses) on available-for-sale
financial assets	203	892)
	Nine months ended September 30,
	2016	2015
Fair value gains (losses) on available-for-sale
financial assets		782)

B. The Company's income tax returns through 2013 have been assessed and approved by the Tax Authority.

C. Unappropriated retained earnings:

	September 30, 2016		December 31, 2015 September 30, 2015
After 1998	49,140 \$	81,802 \$	64,232

D. As of September 30, 2016, December 31, 2015 and September 30, 2015, the balance of the imputation tax credit account was \$170, \$11,552 and \$67, respectively. The creditable tax rate was 13.33% for the year ended December 31, 2015 and is esitimated to be 0.35% for the year ended December 31, 2016.

(20) Earnings per share

			Three months ended September 30, 2016
			Weighted average
			number of ordinary
			shares outstanding		Earnings per share
		Amount after tax	(share in thousands)		(in dollars)
Basic earnings per share
Profit attributable to ordinary
shareholders of the parent	S	13,235	83,160	S	0.16
Diluted earnings per share
Profit attributable to ordinary
shareholders of the parent	S	13,235	83,160
Assumed conversion of all
dilutive potential ordinary
shares
Employees' bonus			66
Profit attributable to
shareholders of the parent
plus assumed conversion of
all dilutive potential ordinary shares	S	13,235	83,226	S	0.16
			Three months ended September 30, 2015
			Weighted average
			number of ordinary
			shares outstanding		Earnings per share
		Amount after tax	(share in thousands)		(in dollars)
Basic earnings per share
Profit attributable to ordinary
shareholders of the parent	S	28,339	83,160		0.34
Diluted earnings per share
Profit attributable to ordinary
shareholders of the parent	S	28,339	83,160
Assumed conversion of all
dilutive potential ordinary
shares			375
Employees' bonus			106
Profit attributable to
shareholders of the parent
plus assumed conversion of
all dilutive potential ordinary shares		28,339	83,641		0.34

			Nine months ended September 30, 2016
		Amount after tax	Weighted average number of ordinary shares outstanding (share in thousands)		Earnings per share (in dollars)
Basic earnings per share
Profit attributable to ordinary shareholders of the parent	S	48,782	83,160	S	0.59
Diluted earnings per share
Profit attributable to ordinary shareholders of the parent	\$	48,782	83,160
Assumed conversion of all dilutive potential ordinary shares
Employees' bonus			259
Profit attributable to shareholders of the parent plus assumed conversion of all dilutive potential ordinary
shares		48,782	83,419	S	0.58
		Amount after tax	Nine months ended September 30, 2015 Weighted average number of ordinary shares outstanding (share in thousands)		Earnings per share (in dollars)
Basic earnings per share
Profit attributable to ordinary shareholders of the parent	S	64,068	83,149	S	0.77
Diluted earnings per share Profit attributable to ordinary
shareholders of the parent Assumed conversion of all dilutive potential ordinary	S	64,068	83,149
shares
Employee stock options Employees' bonus			565 196
Profit attributable to shareholders of the parent plus assumed conversion of all dilutive potential ordinary
shares	S	64,068	83,910	S	0.76

(21) Operating leases

Please refer to Note 9(2).

1. RELATED PARTY TRANSACTIONS

Key management compensation

	Three months ended September 30,
	2016	2015
Salaries and other short-term employee benefits	3.424	3,273
	Nine months ended September 30,
	2016	2015

3. PLEDGED ASSETS

None.

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED CONTRACT COMMITMENTS

(1) Contingencies

None.

(2) Commitments

Operating lease agreement

The Group entered into a 9-year non-cancellable operating lease agreement with Science Park Administration for lands and office. The lease agreement is renewable at the end of the lease period at market price.

The future aggregate minimum lease payments are as follows:

		September 30, 2016		December 31, 2015		September 30, 2015
Not later than one year	\$	1,892	S	1,892	S	1,829
Later than one year but not later than five years		7,568		7,568		7,568
Later than five years		473		1,892		2,365
	S	9,933		11,352		11,762

10. SIGNIFICANT DISASTER LOSS

None.

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

None.

12. OTHERS

(1) Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

(2) Financial instruments

A. Fair value information of financial instruments

The carrying amounts of the Group's financial instruments not measured at fair value (including cash and cash equivalents, notes receivable, accounts receivable, other receivables, notes payable, accounts payable and other payables) approximate to their fair values. The fair value information of financial instruments measured at fair value is provided in Note 12(3).

• B. Financial risk management policies
• (a) The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group's financial position and financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.
• (b) Risk management is carried out by a central treasury department (Group treasury) under policies approved by the Board of Directors. Group treasury identifies, evaluates and hedges financial risks in close co-operation with the Group's operating units. The management provides written principles for overall risk management, as well as written policies covering specific areas and matters, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.
• C. Significant financial risks and degrees of financial risks
• (a) Market risk

Foreign exchange risk

i. The Group's businesses involve some non-functional currency operations. The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

					September 30, 2016
							Sensitivity analysis
		Foreign currency amount (In thousands)	Exchange rate	Book value (NTD)	Degree of variation		Effect on profit or loss		Effect on other comprehensive income
(Foreign currency:
functional currency)
Financial assets
Monetary items
USD:NTD	S	9,449	$31.36$ S	296,321	$1\%$	S	2.963 S
USD:RMB		1.325	6.68	8,851	$1\%$		89
Financial liabilities
Monetary items
USD:NTD	S	213	31.36 S	6,680	$1\%$	S	67 S
					December 31, 2015
							Sensitivity analysis
		Foreign
		currency							Effect on other
		amount		Book value (NTD)	Degree of variation		Effect on profit or loss		comprehensive income
		(In thousands)	Exchange rate
(Foreign currency: functional currency)
Financial assets
Monetary items
USD:NTD	S	7.612	32.83S	249,869	$1\%$	S	2,499 \$
USD:RMB		910	6.49	5.907	1%		59
HKD:NTD		487	4.24	2,062	$1\%$		21
Financial liabilities
Monetary items
USD:NTD	S	135	32.83 S	4.448	$1\%$	S		44 S

						September $30, 2015$
								Sensitivity analysis
		Foreign currency amount (In thousands)	Exchange rate		Book value (NTD)	Degree of variation		Effect on profit or loss		Effect on other comprehensive income
(Foreign currency: functional currency)
Financial assets
Monetary items
USD:NTD	Ś	5,093	32.87	$\mathbf S$	167,407	$1\%$	S	$1,674$ \$
USD:RMB		1,438	6.36		9,146	1%		91
HKD:NTD		487	4.24		2,065	1%		21
Financial liabilities
Monetary items
USD:NTD	S	284	32.87	S	9,335	1%	S	93	$\mathcal{S}$

ii. The total exchange gain (loss), including realised and unrealized arising from significant foreign exchange variation on the monetary items held by the Group for the three months and nine months ended September 30, 2016 and 2015, amounted to (\$8,464), \$16,398, (\$12,281) and \$10,605, respectively.

Price risk

• i. The Group is exposed to equity securities price risk because of investments held by the Group and classified on the consolidated balance sheet as available-for-sale financial assets. The Group is not exposed to commodity price risk. To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Group.
• ii. The Group's investments in equity securities comprise domestic listed and unlisted stocks. The prices of equity securities would change due to the change of the future value of investee companies. If the prices of these equity securities had increased/decreased by 1% with all other variables held constant, for the nine months ended September 30, 2016 and 2015, other components of equity would have increased/decreased by \$553 and \$866, respectively, as a result of gains/losses on equity securities classified as available-for-sale.
• (b) Credit risk
• i. Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. According to the Group's credit policy, each local entity in the Group is responsible for managing and analyzing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by management. The utilization of credit limits is regularly monitored. Thus, the probability of credit risk is remote.
• ii. For the nine months ended September 30, 2016 and 2015, no credit limits were exceeded during the reporting periods, and management does not expect any significant losses from non-performance by these counterparties.
• iii. The credit quality information of financial assets that are neither past due nor impaired is as follows:

	September 30, 2016
		Group 1		Group 2
Accounts receivable		1,246		31,923
		December 31, 2015
		Group 1		Group 2
Accounts receivable		1.452		41,386

September 30, 2015
	Group 2
1.353	36,518
	Group

• Group 1: Credit limits granted to customers less than \$1,000 according to existing customers' selling limits for the first half year and receipts of accounts receivable during the latest three months.
• Group 2: Credit limit granted to customers exceeding \$1,000 according to existing customers' selling limits for the first half year and receipts of accounts receivable during the latest three months.
• iv. The ageing analysis of financial assets that were past due but not impaired is as follows:

Accounts receivable		September 30, 2016		December 31, 2015		September 30, 2015
Up to 30 days	S	7.029	S	5,679	S	6,386
31 to 90 days		1,071		1,307		3,529
91 to 180 days		74		1,610		34
Over 181 days		660		1,319		1,979
		8,834		9,915		11,928

The above ageing analysis was based on past due date.

• (c) Liquidity risk
• i. Cash flow forecasting is performed by Group treasury. Group treasury monitors rolling forecasts of the Group's liquidity requirements to ensure it has sufficient cash to meet operational needs. Such forecasting compliance with internal balance sheet ratio targets and, if applicable external regulatory or legal requirements, for example, currency restrictions.
• ii. Surplus cash held by the operating entities over and above balance required for working capital management will be invested in interest bearing current accounts and time deposits, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts.
• iii. The table below analyses the Group's non-derivative financial liabilities based on the remaining period at the balance sheet date to the contractual maturity date for nonderivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

Non-derivative financial liabilities:			Between			Between
September 30, 2016		Less than 1 year	1 and 2 years			2 and 5 years
Notes payable	S	5,645	S		$\mathbb{S}$
Accounts payable		6,792
Other payables		26,190
Other financial liabilities		780		886		1,264
(shown as other non-current liabilities)
Non-derivative financial liabilities:			Between			Between
December 31, 2015		Less than 1 year	1 and 2 years			2 and 5 years
Notes payable	S	8,438	S		S
Accounts payable		4,448
Other payables		39,137
Other financial liabilities		1,282		1,648
(shown as other non-current liabilities)
Non-derivative financial liabilities:			Between			Between
September 30, 2015		Less than 1 year	1 and 2 years			2 and 5 years
Notes payable	$\mathbb{S}$	6,182	S		S
Accounts payable		10,474
Other payables		31,264
Other financial liabilities		1,330		780		820
(shown as other non-current liabilities)

(3) Fair value information

• A. Details of the fair value of the Group's financial assets and financial liabilities not measured at fair value are provided in Note 12(2)A. Details of the fair value of the Group's investment property measured at cost are provided in Note 6(7).

• B. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows:

• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of the Company's investment in listed stocks and emerging stocks is included in Level 1.

• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
• Level 3: Unobservable inputs for the asset or liability. The fair value of the Group's investment in equity investment without active market is included in Level 3.
• C. The related information of financial and non-financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities at September 30, 2016, December 31, 2015 and September 30, 2015 is as follows:

September 30, 2016	Level 1	Level 2	Level 3	Total
Assets
Recurring fair value measurements
Available-for-sale financial assets
Equity securities	29,035 \$	S	26,258 S	55,293 S
December 31, 2015	Level 1	Level 2	Level 3	Total
Assets
Recurring fair value measurements
Available-for-sale financial assets
Equity securities	61,914 \$	S	25,893	87,807 S
September 30, 2015	Level 1	Level 2	Level 3	Total
Assets
Recurring fair value measurements
Available-for-sale financial assets
Equity securities	58,105 \$	S	28,465	86,570 S

• D. The methods and assumptions the Group used to measure fair value are as follows:
• (a) The instruments the Group used market quoted prices as their fair values (that is, Level 1) are listed below by characteristics:

	Listed shares	Emerging stocks
Market quoted price	Closing price	Last transaction price

• (b) Except for financial instruments with active markets, the fair value of other financial instruments is measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial instruments measured by using valuation techniques can be referred to current fair value of instruments with similar terms and characteristics in substance, discounted cash flow method or other valuation methods, including calculated by applying model using market information available at the consolidated balance sheet date (i.e. yield curves on the Taipei Exchange, average commercial paper interest rates quoted from Reuters).
• (c) The output of valuation model is an estimated value and the valuation technique may not be able to capture all relevant factors of the Group's financial and non-financial instruments. Therefore, the estimated value derived using valuation model is adjusted accordingly with additional inputs, for example, model risk or liquidity risk and etc. In accordance with the Group's management policies and relevant control procedures relating to the valuation models used for fair value measurement, management believes adjustment to valuation is necessary in order to reasonably represent the fair value of financial and non-financial instruments at the consolidated balance sheet. The inputs and pricing information used during valuation are carefully assessed and adjusted based on current market conditions.
• (d) The Group takes into account adjustments for credit risks to measure the fair value of financial and non-financial instruments to reflect credit risk of the counterparty and the Group's credit quality.
• E. For the nine months ended September 30, 2016 and 2015, there was no transfer between Level 1 and Level 2.
• F. The following chart is the movement of Level 3 for the nine months ended September 30, 2016 and 2015:

		2016		2015
		Non-derivative		Non-derivative
		equity instrument		equity instrument
At January 1	S	25,893	S	33,068
Losses recognised in profit or loss (Note 1)		346)
Gains and losses recognised in other comprehensive income (Note 2)		711		4,603)
At September 30		26,258		28,465

Note 1: Recorded as non-operating income and expense.

Note 2: Recorded as unrealised valuation gain or loss of available-for-sale financial assets.

• G. For the nine months ended September 30, 2016 and 2015, there was no transfer into or out from Level 3.
• H. Finance department is in charge of valuation procedures for fair value measurements being categorised within Level 3, which is to verify independent fair value of financial instruments. Such assessment is to ensure the valuation results are reasonable by applying independent information to make results close to current market conditions, confirming the resource of information is independent, reliable and in line with other resources and represented as the exercisable price, and frequently updating inputs and making any other necessary adjustments to the fair value.
• I. The following is the qualitative information of significant unobservable inputs and sensitivity analysis of changes in significant unobservable inputs to valuation model used in Level 3 fair value measurement:

		Fair value at September 30, 2016	Valuation technique	Significant unobservable input	Range weighted average)	Relationship of inputs to fair value
Non-derivative equity instrument:
Unlisted shares	S	26,258	Net asset value	Not applicable	٠	Not applicable
		Fair value at December 31, 2015	Valuation technique	Significant unobservable input	Range (weighted average)	Relationship of inputs to fair value
Non-derivative equity instrument:
Unlisted shares	\$	26,487	Net asset value	Not applicable		Not applicable
		Fair value at September 30, 2015	Valuation technique	Significant unobservable input	Range (weighted average)	Relationship of inputs to fair value
Non-derivative equity instrument:
Unlisted shares	S	29,224	Net asset value	Not applicable		Not applicable

13. SUPPLEMENTARY DISCLOSURES

• (1) Significant transactions information
• A. Loans to others: None.
• B. Provision of endorsements and guarantees to others: None.
• C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): Please refer to table 1.
• D. Acquisition or sale of the same security with the accumulated cost exceeding \$300 million or 20% of the Company's paid-in capital: None.
• E. Acquisition of real estate reaching NT\$300 million or 20% of paid-in capital or more: None.

• F. Disposal of real estate reaching NT\$300 million or 20% of paid-in capital or more: None.

• G. Purchases or sales of goods from or to related parties reaching NT\$100 million or 20% of paidin capital or more: None.

• H. Receivables from related parties reaching NT\$100 million or 20% of paid-in capital or more: None.
• I. Trading in derivative instruments undertaken during the reporting periods: None.
• J. Significant inter-company transactions during the reporting periods: None.
• (2) Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 2.

• (3) Information on investments in Mainland China
• A. Basic information: Please refer to table 3.
• B. Significant transactions, either directly or indirectly through a third area, with investee companies in the Mainland Area: None.

14. SEGMENT INFORMATION

(1) General information

The Group operates business only in a single industry and is mainly engaged in distribution of communications Network ICs or related services. The chief operating decision-maker who allocates resources and assesses performance of the Group as a whole, has identified that the Group has only on reportable operating segment.

(2) Segment information

The segment information provided to the chief operating decision-maker for the reportable segments is as follows:

		Nine months ended		Nine months ended
		September 30, 2016		September 30, 2015
Revenue from external customers	$\mathbb{S}$	234,952	S	238,630
Depreciation and amortisation (including investment property)		8,860		9,378
Income tax expense		7,353		8,335
Investment loss accounted for under the equity method				4,499
Reportable segments income		48,781		64,068
Assets of reportable segments		1,263,963		1,305,770
Capital expenditure in non-current assets of reportable segments		2,801		162
Liabilities of reportable segments		65,733		74,661

(3) Reconciliation for segment income (loss)

The Company and its subsidiaries operate business only in a single industry.

Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures) DAVICOM Semiconductor, Inc. September 30, 2016

Table 1

Expressed in thousands of NTD (Except as otherwise indicated)

					As of September 30, 2016
		Relationship with the securities	General		Book value	Ownership		Pootnote
Securities held by	Marketable securities (Note 1)	issuer (Note 2)	ledger account	Number of shares	(Note 3)	(9/6)	Fair value	(Note 4)
The Company	Unitech Capital Inc.		Available-for-sale financial assets		26,104		26,104
			- non-current	,000,000		$2.00\%$
The Company	Auden Techno Corp.		Available-for-sale financial assets		16,384		16,384
			- non-current	,210,000		2.96%
The Company	D-Link Corporation		Available-for-sale financial assets		5,683		5,683
			- current	2,152,500		$0.08\%$
The Company	Analog Integrations Corporation		Available-for-sale financial assets		300		300
			current	108,000		0.37%
Davicom Investment Inc.	Global Mobile Corp.		Financial assets measured at cost	892,458		$0.32\%$
Davicom Investment Inc.	MTECH Corporation		Available-for-sale financial assets
			- non-current	200,000	154	$.21\%$	154
Davicom Investment Inc.	Auden Techno Corp.		Available-for-sale financial assets
			- non-current	654,000	6,668	1.60%	8,881

Note 1: Marketable securities in the table refer to stocks, bonds, beneficiary certificates and other related derivative securities.

Note 2: Leave the column blank if the issuer of marketable securities is non-related party.

Note 4: The number of shares of securities and their amounts pledged as security or pledged for loans and their restrictions on use under some agreements should be stated in the footnote if the securities presented herein Note 3: Fill in the amount after adjusted at fair value and deducted by accumulated impainment for the marketable securities measured at fair value; fill in the acquisition cost or amortised cost deducted by accumulated im marketable securities not measured at fair value.

Table 1, page 1

DAVICOM Semiconductor, Inc.

Information on investees
September 30, 2016

Table 2

Expressed in thousands of NTD
(Except as otherwise indicated)

				Initial investment amount			Shares held as at September 30, 2016		Net profit (loss)	income(loss) Investment
			Main business	September 30, Balance as at	Balance as at December 31.		Ownership		ended September	the nine months Company for the six of the investee for recognised by the months ended
Investor	Investee	Location	activities	2016	2015	Number of shares	(9/6)	Book value		30,2016 September 30, 2016 Footnote
The Company	ISCC Inc.	Samoa	investment General	143,224	143,224	4,400,000	100	104,889	485) (\$	485)
The Company	Davicom Investment Inc.	Taiwan	mvestment General	222,000	222,000	21,200,000	100	209,361	1,239	1,239
The Company	Medicom Corp.	Taiwan	manufacturing of Designing and	30,393	30,393	496,811	99.36	447	160)	160
I'SCC Inc.	Jubilink Ltd.	British Virgin Islands	investment General	82,725	82,725	22,775,207	$\overline{001}$	¥	$\frac{1}{6}$	ଚ

$\overline{\phantom{a}}$

Information on investments in Mainland China DAVICOM Semiconductor, Inc.

September 30, 2016

Expressed in thousands of NTD (Except as otherwise indicated)

investments in income remitted Accumulated amount of investment	as of September as of September	30, 2016 Footnote
Book value of		30,2016	42,882
months ended for the nine recognised by income (loss) the Company Investment	2016	(Note2)	$1,011$ ) \$ S
	Remitted to Remitted Mainland China investee as of Ownership held by September 30, Mainland China back to Taiwan	2016 (direct or indirect)	100
Net income of
remittance from Taiwan to amount of	as of September September 30, the Company	30,2016	78,400 (S 1,011)
back to Taiwan for the nine Accumulated months ended September China/Amount remitted	back to	Taiwan
Amount remitted from Taiwan to Mainland 30,2016	Mainland	China
remittance from Accumulated amount of Taiwan to	Mainland China as of January 1,	2016	78,400
	Investment	Paid-in capital method (Note 1)
			78,400
	Main business	activities	Development and chipset and other Ethernet LAN, test of Fast moducte
	Investee in Mainland	China	(SuZHou) Co.LTD DAVICOM IC

Note 1: Investment methods are classified into the following three categories; fill in the number of category each case belongs to:

(1) Directly invest in a company in Mainland China..
(2) Through investing in TSCC Inc., an existing company in the third area, which then invested in the investee in Mainland China. (3)Others. Note 2: Investment income (loss) was recognised based on the financial statements that are audited and attested by R.O.C. parent company's CPA.

AOEA	Hairs (MOE)	September 30, 2016	у папп
the Investment Commission	momic	rom Taiwan to Mainland China as of of the Ministry of Ecor
and China II		Accumulated amount of remittance by the Investment Commission
Ceiling on investment	pavone nvestment amount app

718,938

98,784 \$

78,400 \$

i,

DAVICOM IC (SuZHou) Co.LTD

Table 3, page 1

Table 3